SECTION 3. TRANSITION

PENALTY RELIEF

.01 Qualified Tips and Occupations Prior to the enactment of the OBBBA, payors reporting payments pursuant to sections 6041, 6041A, and 6050W, were not required to include a separate accounting of amounts designated as cash tips or the occupation of recipients. Employers reporting the payment of wages pursuant to section 6051 generally were required to report certain tips but were not required to report the occupations of employees. The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) are aware that payors and employers may not currently have the information required to be reported under the information reporting changes made by the OBBBA, or the systems or procedures in place to be able to correctly file the additional information with the Secretary (or the SSA in the case of a Form W-2) and furnish such information to payees and employees. Moreover, the IRS has already announced that Forms W-2 and 1099 for taxable year 2025 will not be updated to account for the OBBBA-related changes. Therefore, taxable year 2025 will be regarded as a transition period for purposes of IRS enforcement and administration of the new information reporting requirements for cash tips added to the Code under section 70201(f) of the OBBBA.

For taxable year 2025, the IRS will not impose a penalty under section 6721 or 6722 in any of the following circumstances:

(1) if a payor required to file an information return under section 6041(a) fails to provide on that return a separate accounting of any such amounts reasonably designated as cash tips or the occupa

tion described in section 224(d)(1) of the person receiving such tips;

(2) if a payor required to furnish a written statement under section 6041(d) fails to provide on that statement the portion of payments that have been reasonably designated as cash tips or the occupation described in section 224(d)(1) of the person receiving such tips;

(3) if a payor required to file an information return under section 6041A(a) fails to provide on that return a separate accounting of any such amounts reasonably designated as cash tips or the occupation described in section 224(d)(1) of the person receiving such tips;

(4) if a payor required to furnish a written statement under section 6041A(e) fails to provide on that statement the portion of payments that have been reasonably designated as cash tips or the occupation described in section 224(d)(1) of the person receiving such tips;

(5) if a TPSO required to file an information return under section 6050W(a) fails to provide on that return the portion of reportable payment transactions that have been reasonably designated by payors as cash tips or the occupation described in section 224(d)(1) of the person receiving such tips;

(6) if a TPSO required to furnish a written statement under section 6050W(f) fails to provide on that statement a separate accounting of any such amounts that have been reasonably designated by payors as cash tips or the occupation described in section 224(d)(1) of the person receiving such tips;

(7) if an employer required to furnish a written statement under section 6051(a) fails to provide on that statement the total amount of cash tips reported by the employee under section 6053(a) or the occupation described in section 224(d)(1) of such employee; or

(8) if an employer required to file a copy of the written statement under section 6051(a) with the SSA pursuant to section 6051(d) fails to provide on that statement the total amount of cash tips reported by the employee under section 6053(a) or the occupation described in section 224(d) (1) of such employee.

The penalty relief provided in this notice is limited to returns and statements filed and furnished with respect to taxable

year 2025. The penalty relief applies only to the extent that the person required to make the return or statement otherwise files and furnishes a complete and correct return or statement. A complete return or statement must include the amount of cash tips that would otherwise be required to be separately accounted for on the return or statement in the aggregate amount of payments required to be reported under section 6041(a) or (d), section 6041A(a) or (e), the gross amount of reportable payment transactions required to be reported under section 6050W(a) or (f), or the total amount of wages paid required to be reported under section 6051(a) or (d).

While not a requirement to receive the penalty relief provided in this notice, employers and payors are encouraged to provide employees and payees, particularly those in a tipped occupation, with the occupation codes and separate accountings of cash tips, such that the employee or payee has the information the employee or payee needs to determine whether the employee or payee can claim the deduction for qualified tips under section 224 for taxable year 2025. Employers are also encouraged to provide employees with information regarding whether the employer’s trade or business is a specified service trade or business as defined in section 199A(d)(2). Employers and payors can make such information available to their employees and payees through an online portal, additional written statements furnished to the employees or payees, or other secure methods.

.02 Qualified Overtime Compensation Prior to the enactment of the OBBBA, payors reporting payments pursuant to section 6041 were not required to file returns and furnish statements containing a separate accounting of amounts designated as qualified overtime compensation. Employers reporting the payment of wages pursuant to section 6051 generally were also not required to separately report the total amount of qualified overtime compensation. The Treasury Department and the IRS are aware that payors and employers may not currently have the information required to be reported by the OBBBA or the systems or procedures in place to be able to correctly file the additional information with the Secretary (or the SSA in the case of a Form W-2) and

November 24, 2025 742 Bulletin No. 2025–48

furnish such information to payees and employees. Therefore, taxable year 2025 will be regarded as a transition period for purposes of IRS enforcement and administration of the new information reporting requirements for qualified overtime compensation added to the Code under section 70202(c) of the OBBBA. The IRS will not impose a penalty under sections 6721, or 6722 in any of the following circumstances:

(1) if an employer required to furnish a written statement under section 6051(a) fails to separately provide on that statement the total amount of qualified overtime compensation (as defined in section 225(c)); (2) if an employer required to file a copy of the written statement under section 6051(a) with the SSA pursuant to section 6051(d) fails to separately provide on that statement the total amount of qualified overtime compensation (as defined in section 225(c));

(3) if a payor required to file an information return under section 6041(a) fails to provide on that return a separate accounting of any amount of qualified overtime compensation (as defined in section 225(c)); or

(4) if a payor required to furnish a written statement under section 6041(d) fails to provide on that statement the portion of payments that are qualified overtime compensation (as defined in section 225(c)).

The penalty relief provided in this notice is limited to returns and statements filed and furnished with respect to taxable year 2025. The penalty relief applies only to the extent that the person required to make the return or statement otherwise files and furnishes a complete and correct return or statement. A complete return or statement must include the amount of qualified overtime compensation that would otherwise be required to be separately accounted for on the return or statement in the aggregate amount of payments required to be reported under section 6041(a) or (d), or in the total amount of wages required to be reported under section 6051(a).

While not a requirement to receive the penalty relief provided in this notice, employers and payors are encouraged to provide employees and payees with separate accountings of overtime compensation such that the employee or payee has the information the employee or payee needs to determine whether the employee or payee can claim the deduction for qualified overtime compensation under section 225 for taxable year 2025. Employers and payors can make such information available to their employees and payees by including it in box 14 of the employee’s Form W-2, or through an online portal, additional written statements furnished to the employees or payees, or other secure methods.